More than half of young Muslim consumers would adopt Islamic banking if it were more accessible, according to a report from cloud banking platform Mambu.
The ‘Faith and finance: The changing face of Islamic banking’ report, which surveyed 2,000 millennial and Gen Z Muslim consumers globally, illustrates the growing appeal of Islamic finance services around the world, with over half (53%) of respondents saying they would choose Islamic banking if barriers to entry were removed.
This reflects a wider demand for ethical banking services in the wake of COVID-19, as consumers seek to make more sustainable and socially conscious choices post-pandemic.
According to Mambu’s research, 74% of young Muslims said they want banks to make investments that align with their religious beliefs, while 75% want them to make investments that ‘do good in the world’. More specifically, almost two thirds (62%) were opposed to their bank lending to tobacco companies, and 69% would rather their banks not lend to gambling institutions.
Elliott Limb, Chief Customer Officer at Mambu, said: “Younger consumers are demanding financial change, and the Islamic finance market is no exception. Our research illustrates how Islamic banking trends mirror the demand we’re seeing for ethical banking practices more broadly.
“With 1.9 billion Muslims underserved globally, it’s clear that there’s a huge opportunity for both Islamic and conventional banks, alike, to provide compliant solutions for the modern consumer.”
The Islamic finance market is growing rapidly. Total assets in the sector have exceeded $2 trillion in recent years and are expected to reach $3.8 trillion by 2023. But a lack of digital services could be a major barrier to service uptake among the next generation of consumers.
According to Mambu’s research, 76% of young Muslims said the availability of online banking options is a dealbreaker. Specifically, 70% said that it’s important they can make an investment without having to see someone in person, 74% said it’s important they can access their bank’s services via a mobile app, and 80% said it’s important they can access banking services anywhere, at any time.
Myles Bertrand, Managing Director APAC at Mambu, said: “This report has particular relevance for the Southeast Asian market, which has a young and digitally-savvy population who have an expectation that their bank will deliver the products and services that they want and need, in a way that works for them. Islamic banking is ripe for disruption and long overdue for a digital overhaul in the region – results of this survey identify that meeting the needs and expectations of young millennial and Gen Z consumers will ultimately drive change in the Islamic finance industry across Asia Pacific.”
Mambu’s recently appointed General Manager, Malaysia, Kevin Pu, added, “In this report, 79% of Malaysian respondents said it was important that they’re able to access Islamic financial services online or via an app, and in fact two-thirds said it was a deal breaker if their bank couldn’t offer online banking services. This shows us just how imperative it is for Malaysian banks and financial institutions to be offering Shariah-compliant products and services via digital channels. The Mambu survey also identifies that young Malaysian Muslims have very high levels of satisfaction with their current banks, which positions these organisations well to offer new Shariah-compliant products.”
Malaysia is considered the Asia Pacific region’s centre of Islamic finance, with a penetration rate of 39.9% for Islamic financing (as at June 2020, Bank Negara Malaysia) as a percentage of total banking’s loans and financing. Approximately 60% of Malaysia’s population identifies as Muslim, with this percentage projected to increase to 72% by 2050.
Digital banking, while still in its early stages in Malaysia, is soon set to experience rapid growth and innovation, with Bank Negara Malaysia now assessing the merits of 29 applications for the five digital banking licences potentially on offer from 2022.
Malaysian Islamic banks, and conventional banks offering Shariah-compliant products, have a tremendous opportunity to capture the hearts and wallets of young, digitally-savvy Muslim customers via innovative digital products and services, but competition will be fierce so organisations need to act swiftly.
4 August 2021